Opportunity: Canadian Dollar Stabilizes, Somewhat

Things have started to turn around for the Canadian dollar in the second quarter of 2025. It hit a 22 year low in January of 2025. Investors and property owners, who have been swooning at the high burn rate in their travel plans and property maintenance abroad, may wish to consider recent more positive trends and consider some risk mitigation opportunities now that the dollar is stabilizing somewhat.  

Did you just drop a bundle on school supplies, ballet shoes and hockey gear? Pressure from the precious ones can be daunting at this time of year, especially if those after-school activities are not negotiable. Fortunately, tax relief is possible if you keep the right receipts. So, take a few moments now to make some notes and file your tax receipts. ï Children's Fitness Tax Credit: This federal credit recognizes eligible expenses for sports and fitness activities in which your child participates up to a maximum of $500 for each child under the age of 16. (Parents of a disabled child under 18 can claim more.) A number of activities qualify, including sailing, bowling and golf lessons, as well as hockey and soccer. ï Children's Arts Tax Credit: If your child participates in artistic, cultural, recreational or developmental activities, you can qualify for this federal tax credit which offsets the costs of participation. Costs of instruction, equipment, uniforms, facility rental and administration costs included in the registration or membership fees all qualify for the credit. It covers music, language lessons and the literary, visual and performing arts. ï Child-Care Expenses: Do no despair if the day camp in which you enrolled your little ones this past summer while you and your spouse worked does not qualify for the fitness or arts credit. Those camp costs may qualify for the deduction for child-care expenses ó which gives you more bang for your buck. To claim child-care expenses, however, both parents must generally be working or in school. If an activity qualifies for both the child-care deduction and the fitness or arts tax credits, it must be claimed as a child-care expense. ï Canada Child Tax Benefits. Child-care expenses reduce net income (line 236 of your tax return) and refundable tax credits are calculated on your net income. So, when you maximize your child-care expenses, you increase your possible Canada Child Tax Benefit, which generally must be claimed by the lower-income spouse. ï Medical expenses. The costs for private health-care insurance that are not reimbursed by your benefits plan, glasses, braces, sports medicine, travel to health-care services not available in your local community and a host of prescription drugs qualify as medical expenses on federal/provincial tax returns. To make the most of this deduction, combine all the family's expenses for the preceding 12 months and have the lower-income spouse, assuming he or she is taxable, claim the expenses. ï Public transportation. Don't forget to save those transportation travel passes for a federal non-refundable tax credit of 15% of your monthly expenditures. One parent can claim the travel pass costs for the whole family. It's Your Money, Your Life. An increased tax refund is your ticket to fast cash down the line, which is important, because any tax savings you can find will help with the financial challenges of your children's post-secondary education. With the right education and skills, your children will be financially set. Then, you can focus without guilt on your luxury retirement. Evelyn Jacks is president of Knowledge Bureau, which features "back to schoolî courses for parents who want better financial education and career opportunities in the tax and financial services. Click here for details. Additional education resources: DFA - Tax Services Specialist Designation, MFA - Investment and Retirement Income Specialist Designation programs.  

If in January you contributed $5,000 to your Tax-Free Savings Account (TFSA), then withdrew $2,000 in August to meet an unexpected expense, does that mean you can contribute another $2,000 in November and stay within your limit? After all, your annual contribution room is $5,000. If you answered, "Yes,î you are one of the reasons the Canada Revenue Agency (CRA) is sending out 76,000 letters to taxpayers who have overcontributed to their TFSAs and must pay the penalty. It is not about how much you have in your TFSA at yearend but about how much you have contributed. And withdrawals from your TFSA do not get added back to your contribution room until the following year. According to the CRA, you have an excess TFSA amount  "at any time in a year as soon as the total of all TFSA contributions you made in the year exceeds the total of your TFSA contribution room at the beginning of the year plus any qualifying portion of a withdrawal made in the year up to that time.î (The qualifying portion of the withdrawal is the amount of the withdrawal or the previously determined excess TFSA amount, whichever is less.) If you have overcontributed, you are liable to a tax of 1% on your highest excess TFSA amount in that month. In the above example, if you had mistakenly contributed that extra $2,000 on Nov. 1, your highest excess TFSA amount per month for November to December would have been $2,000. Your tax, therefore, would be $2,000 x 1% x 2 months, which is $40. If, on Dec. 1, you realized your mistake and withdrew $2,000, you would pay one month's penalty. At the start of the new calendar year, your withdrawals from your TFSA are added to that year's contribution room. "The proportion of individuals who received a [mailout warning] was less than 1% of the total number of TFSA holders,î the CRA's Philippe Brideau told the Vancouver Sun.  "This figure is significantly lower than the 1.5% who received proposed TFSA returns in the previous contribution years. While there are instances of misunderstanding, it is apparent that the vast majority of contributors understand the rules.î By the end of the 2011 tax year, 8.2 million Canadians had opened TFSA accounts, which have more than $60 billion in assets. For more information on TFSAs, go to the CRA website.   Additional Educational Resource: Elements of Real Wealth Management.  

In the recent case of Hine v The Queen (2012),  the Tax Court of Canada considered whether the taxpayer, in this case Colin Hine, was "grossly negligentî as defined by section 163(2) of the Income Tax Act in relying on his tax preparer ó in this case, his spouse ó to prepare his tax return. And, in the circumstances, it found he was not. Hine, a general contractor since the late 1990s, turned to "flippingî homes for profit in 2005. His spouse, Diane Prevost, who had a background in financial management and a reputation as competent and meticulous, kept Hine's business records and filed his tax returns. In 2006, Hine sold "Greyrock,î a house he had bought and renovated, for $319,000, but his tax return showed a loss of $131,653 for the year. In April 2008, the Canada Revenue Agency (CRA) audited Hine and found that he had failed to report $157,965 of business income on the sale of Greyrock. The CRA's June 2009 reassessment included taxes arising from the reassessment that, the court noted, was less than $5,200 and the gross negligence penalty of $28,111. Hines appealed the reassessment and the Tax Court heard the case in June 2012. Gross negligence is a phrase found in many areas of law; it is used to impose liability on those whose actions depart from the standard of reasonableness, usually viewed objectively. A high degree of negligence is required if a taxpayer is to be considered "grosslyî negligent under section 163(2) of the Act. In fact, the courts have held that the negligence involved is tantamount to acting intentionally. The jurisprudence, however, is not so clear when it comes to the work of a tax preparer or accountant. It generally must be demonstrated that the tax preparer was grossly negligent and the taxpayer was in some way involved or was suspiciously, "willfully blindî ó that is, the taxpayer acquiesced in the making of the false statements or did not act in a responsible way when a reasonable observer would have been suspicious. Under section 163(2), the CRA may impose a penalty equal to the greater of $100 and 50% of the avoided taxes when the taxpayer knowingly or under circumstances amounting to gross negligence make a false statement or omission in a return. The court found Hines and Prevost credible; it was convinced that their intentions were to report their income diligently and that the mistake was an honest one, brought on by relying on the statement of their lawyer's trust account into which the proceeds of the Greyrock sale had gone. The spousal relationship between the parties did not affect the finding. The court stated that the taxpayer's "blind faith in his wifeî was not unreasonable, even though she was not a professional accountant but merely had experience with bookkeeping. Reasonable reliance, therefore, on an accountant or tax preparer will absolve a taxpayer from a finding of gross negligence. It is interesting that the spousal relationship between the parties and the professional services of Prevost did not feature prominently in the argument. The court stated that gross negligence could not be determined in this case because the objective evidence pointed in a different direction.   Additional Educational Resource: EverGreen Explanatory Notes  

If you are under the age of 40 and looking for direction on how and when to save your money, ask yourself this important question: "What's my ëpotential income'?î Knowing that answer can lighten future financial worries, so you can escape the work world when you want and enjoy your healthy, golden years. So, what is "potential incomeî? It is the sum of income realized today and the income that will be generated in the future from your personal net worth (that is, assets minus liabilities). When you take into account the "annuitized valueî of your future net worth, you can better assess your potential retirement income. You'll also be better able to choose an "order of investingî that will deliver that income from your net worth ó that is, youíll be able to invest any new money in investment accounts in the order in which it will create the best after-tax results now and in the future. (Knowledge Bureau Report, Aug. 15.) For example, what should come first: a home, a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Account (RRSP)? It's a common question because TFSAs and RRSPs are important sources of potential income; one is tax exempt later, the other is tax preferred now. Investing more dollars in ways that protect them from tax erosion and keeping those dollars invested longer in tax-efficient accounts such as RRSPs and TFSAs is a winning recipe, especially when home ownership is included in your potential income. The equity in your home can significantly enhance your retirement fortunes, according to Statistics Canada's research paper, Income Adequacy in Retirement: Accounting for the Annuitized Value of Wealth in Canada. For example, the paper shows, the mean before-tax income per adult in households headed by seniors aged 65 to 74 is 75% of the income of households headed by those 45 to 64. However, when the wealth in the home is considered, income replacement potential increases to 88% of working income. More important, when these numbers are calculated after taxes, your income replacement potential increases to 105%. You'll actually be wealthier in retirement because of the contributions from the tax-exempt gains accruing in your principal residence. An RRSP investment can help because its Home Buyers' Plan allows you to withdraw up to $25,000 in a calendar year from your RRSPs to buy or build a qualifying home. However, don't ruin your potential income by paying too much interest on "too much home.î Mortgage interest costs are non-deductible and, if you pay off your mortgage over a long period of time, can erode your equity. It's Your Money. Your Life. Buying a home you can afford and paying down your mortgage quickly is an important cornerstone of a sound retirement income plan. Together with tax-efficient financial assets and a healthy net worth ó more assets than liabilities ó your wealth will grow exponentially, building sound income potential in retirement. Evelyn Jacks is president of Knowledge Bureau, best-selling author of close to 50 tax- and wealth-planning books and keynote speaker at the Distinguished Advisor Conference in Naples, Florida, Nov. 11 to 14.  

A recent study from the C.D. Howe Institute proposes that Canada's tax rules be amended to allow tax-prepaid savings within Pooled Registered Pension Plans (PPRPs) if, indeed, PRPPs are meant to help low- and middle-income Canadians. The study, entitled Pooled Registered Pension Plans: Pension saviour ó or a new tax on the poor? demonstrates that many lower-income and middle-income workers who save for retirement should not do so in tax-deferred accounts. "Because,î say the study's authors, James Pierlot and Alexandre Laurin, "they will pay effective taxes on withdrawals at rates that are significantly higher than the refundable rates that apply to contributions.î They argue proposed tax rules for PRPPs should be amended to create new Tax-Free Pension Accounts (TFPA) and allow PRPP members to contribute to them. In June, the federal government passed Bill C-25, containing the regulatory framework for PRPPs. The feds have released in stages the proposed tax rules, starting in December 2011 and most recently on Aug. 11 (Knowledge Bureau Report, Aug. 14). They promise one more "packageî of proposed rules. Then it will be up to the provinces to enact enabling legislation. Using Statistics Canada's Social Policy Simulation Database and Model, Pierlot and Laurin looked at the impact of taxes on two single, 30-year-old Albertans, one earning $50,000 and one $33,000. Assuming a 2.5% annual increase in employment earnings, the authors calculated which savings vehicle would provide the best results at age 65, a Tax-Free Savings Plan (TFSA) or an RRSP. In both cases, the TFSA produced the best result. "Many workers don't have steady career paths with constant earnings growth throughout their lifetime, as modeled in our examples,î write the authors. "Therefore, it is entirely possible that the best outcome for many would involve switching between a tax-deferred account and TFPA at some points in their careers. It is impossible to model all possible scenarios, but the new regime should allow participants to choose freely at any time how their savings are allocated between both types of accounts.î That leads to the second proposal ó that PRPP administrators develop the financial planning tools and knowledge necessary to give participants in the plans the guidance they need to make informed choices. The study's third proposal concerns PRPP members having the option of accumulating "targetî pension benefits. The authors suggest there are two ways to do this: ï Allow PRPP members to accumulate pensions using the same defined-benefit rules that apply to pension plans offered by federal and other government levels and by a few private-sector employers; or ï Implement a lifetime accumulation allowance for PRPP members. The final recommendation is for PRPPs to pay a pension. "It seems almost too obvious to state,î write Pierlot and Laurin, "that a pension plan should pay pensions or ó at the very least ó be able to pay them.î But federal tax rules generally prohibit any pension plan from paying a pension unless it is a defined-benefit plan, subject to grandfathered exceptions. That means PRPPs will be subject to the same "deaccumulationî options as defined-contribution plans and RRSPs, putting the onus on plan members to manage their own retirement savings. "Unfortunately, due to financial illiteracy, especially lack of financial planning ability, many PRPP members will not manage their savings effectively in retirement,î they say. The 14-page study calls on the federal government to "rethinkî PRPPs so they can be truly innovative and "help Canadians of all ages and income classes to enjoy secure and comfortable retirements.î   Free Trials: Certificate Self-Study Courses - Earn CE/CPD Credits, Too!  

On Aug. 13, Brian Ball and Bluewater Environmental (Western Canada) Inc. of Sarnia, Ont., pleaded guilty in the Ontario Court of Justice to 10 counts of making false statements on income tax returns and five counts of GST evasion. In total, the fines were just shy of $170,000, or 50% of the income taxes and GST evaded, adding considerably to Ball's and Bluewater's tax bills. From 2004-2008, Ball, the president of Bluewater, diverted funds from Bluewater, including GST that Bluewater had collected, to his personal account, using them to pay credit card bills, insurance, vehicle repairs and debit card purchases. He did not account for any of these funds in his or the company's income tax filings with the Canada Revenue Agency (CRA). Over the four-year period, Ball failed to report $197,499 of personal income taxes, $97,667 in federal taxes and failed to remit $44,305 in GST for Bluewater. In levying its fines, the Acting Assistant Commissioner of the Ontario Region of the CRA stated: "Canadian taxpayers must have confidence in the fairness of the tax system.î In order to maintain that confidence, tax evaders must be held accountable. As a result, Ball and Bluewater had to repay all the taxes owing, plus interest and penalties. They were also fined 50% of the amount owing, almost $170,000. It could have been worse, however. The court could have fined them up to 200% of the taxes evaded and imposed a jail term not exceeding five years. Voluntary Disclosure. If you have previously filed incomplete or incorrect information with the CRA, there is a way you can avoid liability. The CRA offers a Voluntary Disclosure Program (VDP) which allows taxpayers the opportunity to complete or correct previous information. You can only escape penalty or prosecution if you make a valid disclosure, however. Four conditions must be satisfied if the CRA is to consider your disclosure valid. The disclosure must be: ï voluntary, ï complete, ï involve the application or potential application of a penalty, and, ï generally include information that is more than one year overdue. If the CRA accepts your disclosure, it may, under subsection 220(3.1) of the Income Tax Act, cancel or waive penalties or interest otherwise payable. The VDP, however, is an administrative program and, as a result, there is no appeal to the Tax Court if you disagree with the CRA's assessment of your disclosure. You may request a second-level review within the CRA; if your disclosure is again deemed invalid, you can then apply to the Federal Court for judicial review on the basis that the decision is unreasonable. But that is a high threshold to meet. To make a disclosure, complete form RC199, Taxpayer Agreement ó Voluntary Disclosures Program. RC199 allows you to make a "no-nameî disclosure. In order to do this, however, you must provide the first three characters of your postal code so the CRA can ensure appropriate administrative attention. For the Federal Court's thinking on when a disclosure is voluntary, see Distinguished Advisor below.   Additional Educational Resource: EverGreen Explanatory Notes